The FSA has relentlessly pursued brokers to treat customers fairly, but Simon Burgess says what about insurers, brokers are their customers too
In the Chinese calendar, 2007 is the Year of the Pig. Twelve animals are represented in the Chinese New Year and for those who are wondering why only 12 – legend has it that Buddha summoned all the animals to come to him as he departed the earth, but only 12 came to bid farewell. As a reward, he named a year after each one, in the order they arrived.
As the Chinese community welcomed in its new year on 18 February, I suggest the insurance sector adopts some themes for its own "new year".
The FSA will no doubt be looking in earnest for the Year of Transparency, while given their recent grumblings, I suspect brokers are yearning for the Year of Service.
The FSA quest for transparency begins with its well-known missive – Key Rules for General Insurance Brokers. The handbook outlines how "a firm must provide a customer with details of the amount of any fee (or the basis of calculating fees) for an insurance mediation activity". It also states "a firm must, at the request of the commercial customer, promptly disclose commission that it and any associate receives in connection with an insurance contract in cash terms (or basis for calculation) in a durable medium".
The quest continued in December last year when a 'Dear CEO' letter was issued advising "that although the majority of firms had adopted guidance issued by the London Market Brokers' Committee and Biba, there was still a widespread lack of formal process among intermediaries as to what remuneration would be disclosed to a commercial client on request".
All firms are expected to disclose commission to commercial clients, including commission paid to an associate, monies received from profit-sharing arrangements or earned from premium finance companies.
The FSA reminds us that in 2007 or 2008, it will undertake an objective market failure and cost benefit analysis covering both transparency to customer and market.
This will enable the FSA to gather evidence as to whether a lack of transparency is leading to customer detriment and/or impairing market efficiency, plus help with the decision whether mandating commission disclosure to commercial customers will lead to benefits that outweigh the costs of introducing it.
It's ironic that the FSA is looking into whether a lack of transparency is impairing market efficiency. Many in the broking community have been on the receiving end of "impaired market efficiency", courtesy of the large insurers, for years.
If only insurers were so transparent when it comes to how they're spending clients' money. Their glossy reports and accounts are full of positive messages and profit news to shareholders and customers.
But what percentage of profit is pumped back into enhancing that customer and claims handling experience? And for customers, I mean broker as well as policyholder.
Operating ratios of around 93%–94% are common, set against after-tax profits in excess of £600m plus for big insurers. That's a fair chunk of money going into a pot that isn't set aside for paying claims. Insurers will profess to be investing in greater efficiency and effectiveness. But I suggest one is at the expense of the other.
In October last year, Insurance Times published its Senior Broking Executives Speak Their Mind report. Ninety-one broking leaders were questioned and the clear message was that brokers feel neglected.
There's sparse personal lines support as commercial lines business dominates the revenue streams.
These sentiments were echoed in a recent industry-wide survey. Service or rather the lack of it - is a continuing industry gripe.
More than 60% of brokers regard offshoring as a concern to their business and believe that "dumping good quality staff in favour of cheap overseas call centres will eventually prove not to be cost effective".
I agree whole-heartedly and am concerned about this trend for outsourcing customer-facing activities.
Brokers cite service speeds, access to underwriting, timely renewals, efficient claims management, accurate documentation and being easy to work with as the most important elements of an insurers' service package.
It's not rocket-science, so why is it so hard for some insurers to deliver this?
In 2004, a call centre research and analysis firm warned that although off-shoring may indeed make insurers more efficient, it will not make them more effective.
It reported that Indian call centres provide an inferior service when compared with their UK counterparts. More than a third of callers to Indian centres had to make repeat calls – compared to UK centres where more than 90% of queries or problems were resolved at the first attempt.
Almost a third of calls did not meet customer satisfaction and Indian call centres relied on recording calls to identify any service problems. It was agreed that off-shore salary levels give clear savings, but again I say, at what cost?
In 2006, cost-cutting announcements (which must equate to service dips) came from NU (1700 staff), R&SA (1000), Zurich (@ 700) and AXA (200). These were in the same year that saw a record number of 350 off-shore contracts signed.
But there is evidence that the tide is turning. Esure announced plans to close its Indian call centres by January 2007. Chairman Peter Wood said 'customers don't like calls being handled there and although call centre employees are excellent at keeping to the script and conforming to FSA regulations, they can be deficient in flexibility and cultural understanding'. Amen to that.
Given that all insurers are great advocates of customer service, isn't it time they got back to basics and invested more on UK staff, giving them the skills to do the job properly and support brokers and customers where they need it most?
Then that common complaint 'the bigger the company the poorer the service', can be dispelled.
In the same way that Buddha rewarded the animals that supported him, I suggest insurers try to do the same with their client-base.
I can't help feeling that brokers suffering at the hands of depleted service levels must have been born in the Year of the Pig.
Pigs are honest, tolerant and make good friends, but tend to expect the same from everyone else and more often than not, end up disappointed. IT
Simon Burgess is managing director of British Insurance